Renewable Matter # 06-07 / October-December

Compliance Schemes: Drivers of Economic Development

by Roberto Coizet

Public concern turning into an economic opportunity. The new waste economy is on its way, driven by widespread environmental responsibility, technological innovation and the need to reduce the use of basic resources.

 

It used to be an emergency, a public concern, a cost for the community. It is now becoming a resource, a shared benefit, an economic and employment opportunity. Waste is changing. Its nature, meaning and value are changing and such transformation may be one of the most significant turning points of the third millennium, redesigning the relationship between production and raw materials, changing industrial processes and leading to comprehensive environmental and social consequences.

What has led to this shift? How has waste – one of the most serious and expensive concerns of Western economies in the second half of last century – turned into a possible driver of economic development?

The starting point is simple: in the last ten years, some types of waste have increasingly proven to have higher market value than the relevant collection and management costs. In many cases, after paying for deposit, collection, transport, treatment, recovery, fees envisaged for compliance with regulations, controls and possible certifications, final materials can still be sold to achieve appealing profit margins.

In said cases, waste plays the opposite role. Waste management is not only a need for the community. It becomes a “self-supporting” activity, which can back the industrial supply chain and meet most innovative companies’ raw material needs.

Obviously, as in all structural transformations, economic shifts are neither simple nor linear. Serious concerns still exist, making this market unpredictable and elusive. 

For instance, flow discontinuity and the volatility of their commercial value. 

Waste flows are discontinuous because – except for compliance schemes that will be dealt with later – collection is fragmented and uncoordinated. Several collectors/managers compete for the same customers (businesses and local bodies) and each of them independently decides the waste end-use, selecting the cheapest solution on a case-by-case basis, occasionally acting illegally. Consequently, waste recovery and recycling operators – alleged recipients of the flow – are forced to improvise and find different sourcing procedures with no guarantees, which prevents them from planning investments and rationalizing production. 

Furthermore, the commercial value of many fractions may significantly vary. Sometimes the value of some materials may increase, unleashing optimistic euphoria (and the exponential growth of businesses operating in treatment and recycling), but subsequently drop. In the last ten years, the price of waste, including plastic, packaging cardboard and battery lead, lubricant mineral oil, has experienced fluctuations of up to 100% and even more. Such fluctuations are often linked to the fluctuation of raw materials prices: when they go up, the “secondary materials” market accelerates and vice versa, when they go down, but they are also linked to mere availability of materials (recycling businesses need secondary materials to keep their plants operating and they may compete on prices).

Another transversal issue adding to the previous one is “traceability,” that is the possibility to know exactly the amount and type of waste produced, treated, recipients it is transferred to and the relevant use. Data are exasperatedly vague, not only in Italy, with its environmental mafias, but also throughout Europe. With its two-faced identity, risk/cost and opportunity/profit, waste disappears in very different directions, disguised sometimes as goods and other times as stringent regulatory fulfillments.

Indeed, European and national regulations have played a central role in designing the new waste economy, both as accelerators and as limiting factors. 

They have acted as accelerators, since the early Eighties, in that they have imposed stringent rules and clear targets for waste elimination. Such constraints have led to new activities and professions and the market has well adapted to this change, creating some specialized businesses. 

However, those rules are now somehow rigid. This is partly shown by the notion of waste – created in 1991 in Directive 91/156/EEC – intended as “any substance or object which the holder discards, intends to discard or is required to discard.” The term “discard” refers to something that cannot be used or that is vaguely unpleasant, which can be reasonably given to sanitation services and not to economic operators who can make profit from it. It is as if waste was still semantically and operationally shrouded in a halo of uselessness it can only be freed of, with specific and laborious treatments, which possibly turn it into “recycled” material. And several regulatory contradictions and procedural complexities stem from this vision. 

However, in spite of instability and stall, the new waste economy is on its way, driven by the push of increased environmental responsibility, technological innovation and the need to reduce use of raw materials. The new – urban or industrial – mines already exist and they are waiting to be exploited by adequate professionals.

 

From Responsibility to Economic Benefits

Who are the most adequate professionals for this task? How should the production system be organized to allow for such a rapid transition, while keeping under control the most unstable factors?

First of all, supply chains need to be “harmonized,” making material flows sufficiently consistent and continuous to rationalize industrial processes.

In other terms, to face such issue, companies must unite, sector by sector and in some cases, material by material.

And this could be fostered by the very same European policy that we earlier on described as slow in regulatory terms. Indeed, Europe has adopted Extended Producer Responsibility (EPR) and has proposed a specific tool to implement its rules, the so-called compliance scheme. EPR envisages for goods producers to be in charge of management of waste stemming from their production system. Compliance schemes associate companies operating in the same sector, aimed at reclaiming waste put on the market by affiliated companies.

This formula has immediate effects, in that it innovatively distributes public needs and private interests. Public bodies, indeed, establish operating principles and targets, in compliance with environmental priorities and resource optimization; businesses fix economic principles to achieve targets established.

Collective schemes therefore prove to be a functional invention managing to impose benefits for the community, as one of the variables of business.

Between the Eighties and the Nineties, said schemes were disseminated in Europe, in supply chains where they could be more easily implemented: some particular types of waste (mineral oils, lead batteries, tyres, etc.) and two large sectors related to commodities (packaging and WEEE).

The issue of management – entrusted to businesses, as previously mentioned – is dealt with in different ways and changed on different occasions. Two models prevail: “centralized” systems, envisaging one single collective scheme gathering and coordinating all national businesses and “multiple” systems, envisaging several collective schemes operating on the national market, having more or less the same functions. 

Except for some very few cases, such schemes involve voluntary membership. Businesses decide to entrust their duties concerning waste to collective schemes, as this is a cheap and functional solution freeing them from direct responsibilities. Businesses delegate responsibilities by becoming members and by paying a fee reflecting the amount and type of waste generated. If several collective schemes exist, businesses can select the best offer.

So far the number of variables is so high that even the European Commission is disoriented. For mineral oils, collective schemes have been created in Spain, Portugal, Italy, Finland and Greece. In the other European countries, management follows more or less organized free market formulas: in Germany, waste is collected by oil regenerating companies, whereas in France, the Governmental Environmental Agency monitors data related to all operators.

For WEEE, some collective schemes have been created in France, Italy, United Kingdom, Ireland, Belgium and Holland. The Belgian scheme is “centralized,” whereas in Italy and the United Kingdom, schemes are “multiple,” involving 17 and 41 authorized systems respectively.

More and different schemes have been created for management of packaging waste, as provisions contained in the Directive (94/62/EC) have fostered their development in Member States. Currently, in the 28 countries, there are 161 collective schemes for managing solid waste (and the scenario is constantly evolving). Some of them are “centralized,” as in France, Italy, Spain or the Czech Republic, whereas in others, collective schemes have reached bewildering numbers: Germany 17, United Kingdom 22, Lithuania 40.

This constant transformation is also due to second thoughts or international disputes on schemes adopted. Countries having “centralized” schemes claim their decision is effective, as it can harmonize the conduct of all national operators, but they are sometimes accused for their poor flexibility or even of abuse of a dominant position. Countries having “multiple” schemes reflect the free market, but their fragmented actions sometimes make prices and fees volatile, besides leading to issues in traceability and continuity of material flows.

There is very lively debate around these two types of schemes, even though it is clear that this shift, complemented by new guidelines and objectives of the circular economy, requires reformulation leading to flexible results that can simultaneously be supervised. Collective schemes cannot reject their mission in environmental resource protection and they therefore require coordination in supervising all necessary operations, even when they may be, so to say, “unprofitable.” On the other hand, they cannot get stuck in a self-conservatory power system, which cannot adjust to the evolution of technology and new markets. Though being free-market systems, “multiple” schemes should not be governed by profit-making logics (benefits achieved should go to affiliated businesses and never to the system) and this requires voluntary adoption of rules and principles going beyond regulatory compliance.

Regardless of the evolution of compliance schemes, when they exist, compliance schemes have achieved unprecedented performance in terms of recovery and recycling, as well as economic results and employment, compared to cases when they do not exist. 

This formula works and this particular public/private tool also opens an important political outlook: environmental protection areas becoming economically independent and not involving any costs for the community may start to be managed privately, creating “new delegations” to companies, as the protagonists of the economy, but also of social agreements and civil actions stemming from the economy.

 

Different Perspectives

What happens to fractions that have not yet found the relevant compliance scheme? 

In the last few years, several supply chains have exceeded the threshold separating waste from renewable materials. In particular, two main flows are going to exceed said threshold: organic matter waste and waste stemming from construction and demolition works.

Evidently, in those cases, the same schemes cannot be used for packaging or used tyres. 

The organic matter supply chain involves a number of fragmented parties, which does not allow automatically levying a fee to “all” those who sell their products, including small farmers growing vegetables. It is necessary to identify flows where they are consistent, probably in industrial production and large distribution. It is important to value said matter, which is potentially very rich, giving it back to the land or making it available for industrial production of new biominerals.

A similar approach should apply to waste stemming from construction/demolition works. Once again, it is impossible to apply extended producer responsibility to the letter. For instance: when the Empire State Building, built between 1930 and 1931, turns into waste, it will be impossible to find “initial producers.” It will therefore be more reasonable to refer to “initial waste producers” (even though it is not always easy to clearly identify them), rather than to goods producers.

New roles and new responsibilities must be created.

 

Empire State Building. Photo by Aniruddhags

 

However, this is not a big issue: constant dialogue with the operators of each sector may lead to find a solution. Stall and disputes emerge when money to be spent and especially those who have to spend it come into play. Notwithstanding, the economic shift initially mentioned can give a thrust to such inactivity. 

Nowadays, compliance schemes are not created so that someone bears costs in the name of the community: they are created because the system can already – or tends to – redistribute economic benefits to all stakeholders of the supply chain. The new mines of the planet are exploited operating in a scenario envisaging fair profits in the future.

 

In this number of Renewable Matter

  • In this Focus: Waste issue, Paola Ficco pinpoints some regulatory contradictions stemming from the notion of “discarding,” in particular related to the issue of reuse.
  • Compliance schemes contribute to the “environmental democracy,” as Pasquale Fimiani reports in this Focus: Waste issue, as the right to participate in decision-making processes – a standard to assess democracy – is achieved in this case via a sort of public/private “co-administration.”
  • In this Renewable Matter issue, Paolo Tomasi illustrates the reasons of the gradual operating shift adopted by COOU, Consorzio italiano per gli oli minerali (Italian Consortium for Waste Oil).
  • In this Focus: Waste issue, Danilo Bonato, interviewed by Antonio Cianciullo, presents an interesting analysis of WEEE collection and recovery in Europe.
  • Giovanni Corbetta, in this Focus: Waste issue, reflects on ethical criteria that may be adopted by compliance schemes to play their twofold public and private role.
  • Aldo Femia, in this Focus: Waste issue, presents some data on material flows reclaimed by European compliance schemes.